The recent slump in crude oil prices means that the tailwind to consumer price inflation from soaring energy prices won’t be sustained. After boosting Australia’s headline inflation by 0.6 percentage points in the third quarter, automotive fuels may become a drag by the middle of next year. (See Chart 1.) Airfare prices may start to fall, too. However, we doubt that this will prompt either the Reserve Bank of Australia (RBA) or the Reserve Bank of New Zealand (RBNZ) to cut interest rates. After all, falling energy prices provide a boost to real household incomes and could result in stronger demand for other goods and services.
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